Mortgage lending soars by 29% in a year as first-time buyer boom goes on

Mortgage lending soared 29 per cent in the year to July as first-time buyers flock to the property market, according to data from the Council of Mortgage Lenders.

The boom in lending to £16.7billion included 25,300 loans to first-time buyers in July, a five per cent increase on June and 41 per cent higher than the same time last year, to hit its strongest level in more than five and a half years.

The study also showed an increase in home movers taking out loans, while homeowner remortgage lending continued to pick up compared to last year and recent months.

Thriving: The housing market has had a healthy year and growth is expected to continue for the foreseeable future and into 2014

The strong growth in lending to first-time buyers since the beginning of the year has continued largely off the back of the Help to Buy scheme, with first-time loans reaching £3.5billion in July while the CML findings have also shown a small increase in first-time buyer household income.

Paul Smee, director general of the
CML, said: 'For only the second time this year, the monthly growth of
movers exceeded the growth in first-time buyers.

'This is a positive sign of a mortgage market where obstacles to transactions are now reducing.'

The data released today adds to the stream of markedly improved news on housing market activity.

Earlier in the week, estate agents revealed house prices in Britain increased at their fastest rate in almost seven years in August. The figure surprised forecasters who were expecting a holiday-period drop.

The Royal Institution of Chartered Surveyors said the number of homes sold also jumped to its highest level in three and a half years.

Raising their confidence: The Bank of England has hinted that interest rates are unlikely to rise before 2016, which may give confidence to more property buyers

Despite good progress in the housing market this year, there is still mounting concern that the Help to Buy mortgage guarantee scheme that launches at the beginning of 2014 could fuel a housing price bubble.

Howard Archer, chief UK and European economist at IHS Global Insight, says it is vitally important for longer-term growth that a new housing price bubble does not emerge.

The industry forecaster said that house prices look set to see solid increases over the final months of 2013 and during 2014.

Archer also adds that the Bank of England has hinted that interest rates are not likely to rise before 2016, which may encourage even more property buyers to enter the housing market.

But, he said: 'The upside for house prices is likely to be capped in the near term at least by extended and ongoing low earnings growth and the fact that housing market activity is currently still appreciably below pre-crisis levels despite the recent improvement.

'A potential bubble is something that officials should keep a very close eye on.

'Policymakers should seriously consider limiting or even pulling the plug on the Help to Buy mortgage guarantee scheme at the first sign of any housing price bubble developing.'